Readers who have been following my short-term hedge positions against the Hawking portfolio will know that I have positions expiring today (Quarterly Options in SPX). I also still have on an “Iron Condor” Hedge, expiring on Friday:
This is a wide “Condor” position and is (almost certainly) likely to expire with a $500 profit. However, I have chosen to spend this money (and a little more) to boost potential profits a little higher. I’ve added a standard “Put Condor” such that the total position now looks as follows:
The Put Condor was purchased for $1,700 (5 x 3.40 x 100) with the SPX trading at ~ 1983 and maximum profit potential on the total positions is now $6,300 with SPX closing between 1965 and 1975 at expiration on Friday. Maximum (likely) loss is $1200 (5:1 Reward/Risk) with SPX below 1950 or above 1990 at expiration. Larger losses are possible (max $3,700) but that would need moves of greater than 2 Standard deviations either up or down.
At 1:00 pm the positions expiring today are looking good for a nice profit (max $3,150 with SPX closing between 1960 and 1985) – so I’m hoping for a good finish to the week to offset most of my earlier losses on my Option hedges.
I realize this is “trading” rather than investing – and maybe not totally relevant to this site – but I know a few members have an interest.
The main message I’d like to convey is that Options are not necessarily risky provided we understand our risk and are comfortable with it. In the above examples I know exactly what my maximum risk and maximum rewards are, together with an idea of the statistical probabilities of making/losing money.